McLeod v. Sandy Island Corp., 20038

• Decision Date: 17 June 1975
• Docket Number: No. 20038,20038
• Citation: 216 S.E.2d 746,265 S.C. 1
• Court: South Carolina Supreme Court
• Parties: Marlene B. McLEOD, Individually and as guardian of Michele McLeod, a minor, Appellant, v. SANDY ISLAND CORPORATION, a corporation, et al., Respondents.

Page 746

216 S.E.2d 746

265 S.C. 1

Marlene B. McLEOD, Individually and as guardian of Michele McLeod, a minor, Appellant, v. SANDY ISLAND CORPORATION, a corporation, et al., Respondents.

No. 20038.

Supreme Court of South Carolina.

June 17, 1975.

Burroughs, Green & Sasser, Conway, for appellant.

Marchant, Bristow & Bates, Columbia, for respondents.

MOSS, Chief Justice:

This action was originally commenced by Marlene B. McLeod, individually and as guardian of Michele McLeod, a minor, the appellant herein, against Sandy Island Corporation, et al., the respondents herein, on December 3, 1970, demanding, Inter alia, that the respondents be required to transfer 94 shares of stock owned by Thomas M. McLeod in Sandy Island Corporation to the appellant, as custodian for Michele McLeod, under the 'Uniform Gifts to Minors Act.'

The respondents resisted the transfer of such stock contending that pursuant to the by-laws of Sandy Island Corporation there could be no transfer of the stock unless the same was first offered to the other stockholders of the corporation prior to such transfer. It was alleged that such language was inserted upon the face of all the stock certificates with the exception of the one issued to Thomas M. McLeod, but that he agreed with the other stockholders to such language being inserted upon the face of his certificate even though his certificate was lost and could not be produced for the insertion of the restriction. It was further contended that the certificate was not lost but was secreted by the appellant for the purpose of obtaining the stock for herself or her child without any restriction upon its transfer and without first offering such to the other stockholders of Sandy Island Corporation.

On February 17, 1972, the Honorable James B. Morrison, Resident Judge of the Fifteenth Judicial Circuit, issued his order, pursuant to the motion of the appellant, granting summary judgment, which required the transfer of the aforementioned shares of stock to the appellant as custodian of Michele McLeod, a minor under the 'Uniform Gifts to Minors Act.' Upon appeal to this Court, the order granting summary judgment, as such relates to the transfer of the shares of stock in the respondent corporation, was reversed, and we there said:

'We hold only that Sandy Island Corporation and its officers are entitled to their day in court to prove, if they can, knowledge of the restriction upon the part of the plaintiff wife and its effect, if any, upon the rights of the minor donee under the circumstances of this case.' McLeod v. Sandy Island Corporation, 260 S.C. 209, 195 S.E.2d 178.

When this case was remanded the issue above set forth was referred to the Master in Equity for Horry County, who held a Reference, took the testimony, and thereafter filed his report recommending that Sandy Island Corporation be given a reasonable time within which to pay to the appellant, in behalf of Michele McLeod, the sum of $50,000 and that upon such payment being made the shares of stock of Thomas M. McLeod be and become the property of the corporation.

The appellant duly filed exceptions to the report of the Master, and such were heard by the Honorable Dan F. Laney, Jr., Presiding Judge, who, by his order, affirmed the Master's Report. This appeal followed.

We think that this appeal can be disposed of by considering the question of whether or not the restriction of the respondent corporation upon its capital stock can be enforced under the facts of this case. This question requires consideration of whether the proposed transfer of the stock by Thomas M. McLeod to the appellant, as custodian for Michele McLeod under the 'Uniform Gifts to Minors Act' was a sale or a gift.

The Sandy Island Corporation was organized in 1964 by seven persons who, in order to keep the ownership of the stock within this group, imposed in its by-laws the following restriction on the sale of its stock by any of its stockholders:

'The Corporation shall have the first option to purchase any shares of stock offered for sale by any stockholder at the same bona fide price offered for said stock by any bona fide purchaser, and a notation to this effect shall appear on the stock certificate as issued.'

Shares of corporate stock are regarded as property, and the owner of such shares may, as a general rule, dispose of them as he sees fit, unless his right to do so is properly restricted. A restriction expressed only as one on sale, the right to sell, or the like, is generally construed narrowly as applicable only to sales and not to mere transfers.

The above quoted restriction provides that before the shares of stock in the corporation can be sold to a third party, they must first be offered to the corporation, which has the option to purchase the stock at the same bona fide price offered for the stock by a bona fide purchaser. There is no evidence in this record from which it can be concluded that Thomas M. McLeod offered to sell shares of stock in Sandy Island Corporation to the appellant or his minor daughter, nor is there any evidence that they made him a bona fide price for the stock.

Marlene B. McLeod and Thomas M. McLeod were formerly husband and wife and residents of the State of Florida and were divorced in that state by a decree dated February 19, 1970. This decree incorporated the separation and settlement agreement that had been entered into by the parties on January 15, 1970, wherein it was agreed that Thomas M. McLeod would convey his 94 shares of stock in Sandy Island Corporation to his wife as custodian for Michele McLeod under the 'Uniform Gifts to Minors Act.' The present action was instituted in this State to establish the decree obtained in Florida as a South Carolina judgment. We quote so much of the settlement agreement which has reference to the disposition of the shares of stock of Thomas M. McLeod in Sandy Island Corporation. It reads as follows:

'18. Husband simultaneously herewith agrees To convey his stock and all physical property in Sandy Isles to their daughter, Michele, with the wife to hold the same as custodian Under the Gifts to Minors Act. Wife agrees to assume all obligations remaining due on said stock. Husband simultaneously herewith Also agrees to give said daughter that certain Promissory Note from his brother, together with any security for said note, having been given for certain Sandy Isle Stock. The delivery of said physical equipment to remain at Sandy Isle and it is an exception to the requirement of delivery to the Escrow Agent as provided in Paragraph 12 hereof.' (Emphasis Added.)

The foregoing agreement was confirmed in the final Florida divorce decree as follows:

'20. That the plaintiff (obviously the defendant as we heretofore stated) Shall convey his stock in Sandy Island Corp., represented by Stock Certificate No. 6 for 94 shares of stock, and all physical property in Sandy Isles to the minor child of the parties, to wit: Michele McLeod, with the plaintiff to hold the same as custodian Under the Gifts to Minors Act. That the plaintiff shall assume all obligations remaining due on said stock. That the defendant Shall also give said minor child that certain promissory note from defendant's brother, James P. Stevens, dated October 17, 1964, in the principal sum of $5,000.00, together with any security for said note, * * *.' (Emphasis Added.)

The final Florida divorce decree further provided:

'That the defendant shall pay to the plaintiff the sum of $500.00 per month, commencing February 22, 1970, Which is support money for the said minor child of the parties. * * *' (Emphasis Added.)

It is the contention of the appellant that Thomas M. McLeod made a gift of his shares of stock in Sandy Island Corporation to her as custodian for Michele McLeod under the 'Uniform Gifts to Minors Act.' The respondents contend that such was a sale and not a gift.

A gift has been judicially defined as a voluntary transfer of property by one to another without any consideration or compensation therefor. 38 Am.Jur.2d, Gifts, Section 1, at Page 805, and Lynch v. Lynch, 201 S.C. 130, 21 S.E.2d 569.

The chief distinction between a sale and a gift is that in the former a valuable consideration is necessary, whereas the latter need not rest for its support on any consideration or value. 67 Am.Jur.2d, Sales, Section 27, at Page 137. In Bennett v. Sims, Rice (24 S.C.L.) 421, a sale was defined as a transfer of chattels from one person to another for a valuable consideration.

It is undisputed that Thomas M. McLeod agreed to convey his stock in Sandy Island Corporation to the appellant as custodian for Michele McLeod under the 'Gifts to Minors Act' of the State of Florida. This was confirmed by the Florida divorce decree. The Florida Act is essentially the same as our Act, which is codified in Section 62--401 Et seq., 1974 Cumulative Supplement to the Code. It is obvious to us that when Thomas M. McLeod utilized the 'Gifts to Minors Act' he was, in fact, making a gift of his shares of stock in Sandy Island Corporation to his wife as custodian for his minor dependent child. Under our Act, Section 62--403(1), an adult person may, during his lifetime, make a gift of a security, here, shares of stock, to a person who is a minor on the date of the gift; and Section 62--404(1) makes such a gift irrevocable and conveys to the minor indefeasibly vested legal title to the security. It follows that any conveyance made pursuant to the provisions of this Act is a gift.

By the express language of the above quoted provisions of the Settlement Agreement between the parties in which Thomas M. McLeod used the 'Gifts to Minors Act' with relation to his own stock, he 'also agrees to give said daughter' the note of his brother. We think the use of the language 'also agrees to give' infers that the conveyance of his own stock was a gift.

Thomas M. McLeod testified, over the objection of the appellant, that prior to the...